The Greek government’s efforts to give its pensioners a big Christmas present has backfired spectacularly, after a key party in its economic bail-out suspended its debt relief programme.

Greece’s government, led by Prime Minister Alexis Tsipras, had planned to spend €617m (around £517m) on a bonus payment to the poorest pensioners after protestors were teargassed in October.

The European Stability Mechanism (ESM) has said it not continue with debt relief until it has assessed the government’s plan. Meanwhile, Tsipras is due to meet German Chancellor Angela Merkel in Berlin on Friday to discuss Greece’s financial situation.

Greek government bond yields increased in response, with the 10-year yield rising to month highs of over 7.3 per cent before retreating, according to data company Tradeweb.

The ESM is tasked by Eurozone finance ministers to control its debt relief measures. The third in a series of three bail-outs for Greece since 2010 – in return for severe fiscal austerity – had been agreed on 5 December, but the ESM was apparently not consulted on Tsipras’s giveaway.

An ESM spokesperson said: “Following recent proposals by the Greek government to spend additional fiscal resources for pensions and VAT our governing bodies have put their decisions temporarily on hold.

“Institutions are currently assessing the impact of Greek government decisions vis a vis the ESM programme commitments and targets,” the spokesperson added.